Opening remarks for FCAC Commissioner Lucie Tedesco at the hearing of the House of Commons Finance Committee for the study of Consumer Protection and Oversight in Relation to Schedule 1 Banks  

May 28, 2018

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Good afternoon, Chair, Vice-Chairs and members of this committee. Thank you for inviting me once again to lend my voice to your study on consumer protection and oversight in relation to Schedule 1 banks. 

With me today is my colleague Richard Bilodeau, Managing Director of the Agency’s Supervision and Promotion branch. We are both pleased to be here to answer your questions on FCAC’s report published in March titled, Domestic Bank Retail Sales Practices Review. The report details the findings of our latest industry review.  

This industry review was the most significant supervisory initiative we have ever undertaken. For nine months, a dedicated team of staff under Richard’s direction worked diligently toward achieving the review’s objective: to identify and understand the drivers of sales conduct which could increase the risk of mis-selling or breaches of market conduct obligations within Canada’s six largest federally regulated banks. The scope of this research covered banks’ sales targets and incentive programs, and the controls banks have in place to mitigate risks associated with their sales practices. 

FCAC reviewed more than 4,500 complaints related to sales practices to gain a better understanding of the issues consumers experience when acquiring bank products and services. We reviewed over 100,000 pages of bank documents on matters ranging from training, performance and sales management, to compliance, risk management and internal audit. And we interviewed more than 600 bank employees, including 200 from 30 branches. Our sample included board chairs and directors, senior management, middle management and frontline customer service representatives in call centers and branches.

The key findings, as set out in our report, are as follows:

• Retail banking culture is predominantly focused on selling products and services, increasing the risk that consumers’ interests may not always be given the appropriate priority. 
• The design of banks’ financial and non-financial incentives, sales targets and scorecards may increase the risk of mis-selling and breaches of market conduct obligations.
• Certain products, business practices and distribution channels present a higher sales practices risk. 
• Governance frameworks do not manage sales practices risk effectively.
• Controls to mitigate the risks associated with sales practices are underdeveloped.

The report does not address alleged breaches of the consumer provisions of the Bank Act or relevant regulations. If potential breaches were identified during the course of the review, the allegations are being investigated separately as part of our normal enforcement process.

While we did not uncover evidence of widespread mis-selling, we found that the risk of mis-selling and breaches of market conduct obligations existed across all banks, and we identified a number of areas banks must improve to better protect consumers. For example, we expect the messages of consumer centricity disseminated by bank leaders to be better aligned with bank programs and their underlying infrastructure. We want to see them design compensation programs that encourage employees to work in the interest of their customers, rather than perhaps in the interest of sales targets, and align their control and governance measures accordingly. Going forward, the Agency will monitor their progress on these and other recommendations. 

Although our report on the industry review has been released, our work continues. For example, we will provide an institution-specific report to each of the six banks in the coming weeks, and we will work to ensure that the necessary changes to mitigate the risks identified in the report are implemented. We are also planning a mystery shopping exercise to enhance our understanding of how the risk drivers we identified during the review may materialize. 

Rounding out my introductory remarks, I will say that, as a result of the industry review, FCAC now has a deeper understanding of the context within which the financial institutions we regulate are operating. With this, we will enhance our supervisory capacity to be more proactive and to oversee organizations with increased rigor and skill. 

To illustrate this commitment, we are currently preparing to implement a modernized supervision framework, which was informed by this review. In addition, we are increasing our supervision bench strength and enhancing our information for consumers about financial products and their rights and responsibilities. 

I expect some of you have questions that will allow me to elaborate on these and other implications of our industry review. 

Richard and I would be pleased to address them, at the Chair’s discretion.

Thank you